Bengaluru: Myntra's largest seller Vector E-Commerce posted a 40% jump in revenue at Rs 1,747 crore for the fiscal year ended March 2016, overtaking apparel brand Westside and country’s third-largest ecommerce player Snapdeal.

However, the seven-year-old company posted a loss of Rs 8.7 crore last fiscal due to expansion and deep discounting. It had clocked a Rs 6.5-lakh profit in FY15.

"The increase in operational cost is primarily attributable to increase in inventories and promotional discounts among others, which has resulted in a net loss," the company said in its filings with the Registrar of Companies. “With a view to enhance its margins and profitability, the company (Vector) is actively engaged in tying up with emerging brands which yield better margins in the retail segment when compared to established brands,” the document added.

Since there is a ban on foreign direct investment (FDI) in direct online retail, Myntra sources products from brands and sells them to Vector, which in turn sells them to consumers. Similar model is practiced by other foreign-funded online companies such as Flipkart, Snapdeal and Big Basket.

The exact percentage of sales contribution by Vector in Myntra is not known.The sales growth of Vector, however, has tapered off compared to the past two years when it had doubled its revenues and made a nominal profit as Myntra shifted to app-only model, hurting demand. Bengaluru-based seller's revenue grew 128% and 110%, respectively, in fiscal 2015 and 2014.

"The results or revenues of any single seller do not represent the company’s growth. Myntra has been growing steadily year on year at 65% and is on course to achieving its target $2 billion GMV and profitability by the end of FY18," said a Myntra spokesperson without mentioning details on the percentage of sales contributed by Vector.

WS Retail posted a 33% increase in sales at Rs 13,921 crore for the year ended March 2016, underscoring its dominance as Flipkart's largest vendor. Cloudtail, a joint venture between Amazon Asia and Infosys founder Narayan Murthy’s personal investment vehicle Catamaran, posted over 300% jump in revenue at Rs 4,591 crore in FY16, suggesting nearly 40% of its goods were sold on Amazon's portal. Now, Amazon has also expanded its vendor list by tying up with sellers such as Cart2India Online, Amiable Electronics, Apptronics Retail, E-Mobiles, Okay Enterprises, GreenMobiles and S&S Company.

"During that period (FY16) competition got tougher. Players such as Amazon and Flipkart also got very aggressive on the fashion category. Also brands had started reacting to heavy discounting, which forced them to discount from their pocket,” said Harminder Sahni, founder of Wazir Advisors. “This year should be better for them (sellers) since Myntra is now available across all channels," he added.

Myntra, which expects to be back in the black by fiscal 2018, was only available on mobile application for about a year. However, in May last year, the company changed its strategy and returned to desktops and mobile sites.

Online fashion market leader, which acquired rival Jabong, is now reducing its dependence on Vector as the new government regulations bar any foreign invested marketplace to have a single vendor accounting for more than a fourth of its sales. To comply with the norm, Myntra has been adding multiple new seller entities such as Tech Connect Retail and Health & Happiness.

For the financial year 2015-16, Myntra Designs reported a 38% jump in revenue to Rs 1,069 crore. However, its loss widened to Rs 816 crore.

According to a 2016 Morgan Stanley report, fashion will be one of the most dominant categories. Online penetration in electronics and fashion will increase from 3-5% in 2014 to 25-30% in 2020, resulting in an online market of $88 billion (74% of the Indian ecommerce market then).